General deductions (chapter 13) outlines the key principles for determining whether an expense can be deducted under section 8-1 of the Income Tax Assessment Act 1997. Expenses must be incurred in gaining or producing assessable income or necessarily incurred in carrying on a business. Expenses of a capital or private nature cannot be deducted. Expenses must also have a sufficient connection to income-earning activities through either being incurred in the course of activities, having an essential business character, or relating to carrying on a business. The timing of when an expense is considered 'incurred' also affects deductibility.
General deductions (chapter 13) outlines the key principles for determining whether an expense can be deducted under section 8-1 of the Income Tax Assessment Act 1997. Expenses must be incurred in gaining or producing assessable income or necessarily incurred in carrying on a business. Expenses of a capital or private nature cannot be deducted. Expenses must also have a sufficient connection to income-earning activities through either being incurred in the course of activities, having an essential business character, or relating to carrying on a business. The timing of when an expense is considered 'incurred' also affects deductibility.
General deductions (chapter 13) outlines the key principles for determining whether an expense can be deducted under section 8-1 of the Income Tax Assessment Act 1997. Expenses must be incurred in gaining or producing assessable income or necessarily incurred in carrying on a business. Expenses of a capital or private nature cannot be deducted. Expenses must also have a sufficient connection to income-earning activities through either being incurred in the course of activities, having an essential business character, or relating to carrying on a business. The timing of when an expense is considered 'incurred' also affects deductibility.
You can deduct from your accessible income any loss or outgoing to the extent that
it is incurred in gaining or producing your accessible income,
it is necessarily incurred in carrying on a business for the purpose of gaining or producing your accessible income.
However, you cannot deduct a loss or outgoing under this section, to the extent that
it is a loss or outgoing of capital or of a capital nature,
it is a loss or outgoing of a private or domestic nature. it is incurred in relation to gaining or producing your exempt income or your non assessable nonexempt income, a provision of this act prevents you from deducting it
Terms:
Loss: a taxpayer’s financial resources have been diminished (p323)
Outgoing: some form of payment, outlay or expenditure (P323) Positive limbs (P325): incurred in gaining or producing assessable income or incurred in carrying on a business o There must be a connection between the loss or outgoing and the income earning activities, matching is not necessary as long as there’s a connection (P325) o In the course of & incidental and relevant test (P327) Amalgamated Zinc Ltd v FC of T (1935) (P327): it looked rather to the scope of the operations or activities and the relevance thereto of the expenditure than to purpose in itself W Nevill & Co Ltd v FC of T(1937) (P327): the court treated the payments to an unsuccessful manager, who actually incurred a loss instead of income, is deductible, the initial purpose is still to increase income but failed, and were therefore incurred in the course of gaining or producing accessible income Charles Moore & Co (WA) Pty Ltd v FC of T (1956) (P327): a department store being allowed a deduction for the money that was lost when its employees were robbed, the court held that there’s sufficient connection here, even though no income had been produced but it would be expected to produce assessable income o The character test (P328): whether an outgoing is deductible or not depends upon whether it has the essential character of a business or working expense Lunney & Hayley v FC of T (1958) (P328): The court held that the travel costs from home to work were not deductible since they could not be characterised as a working or business expense. Because an outgoing is a prerequisite to the earning of accessible income that is not sufficient of itself to make the outgoing deductible Objective advantages obtained (P329): Cecil Bros Pty Ltd vs FC of T (1964) (P329) FC of T v Phillips (P329) Subjective purpose (P330): Ure vs FC of T (P330) Magna Alloys & Research Pth Ltd vs. FC of T (P331) Fletcher & Ors v FC of T (P331) o Carrying a business: FC of T vs Snowden & Wilson (1958) (P335): the company sought deductions for costs incurred in defending itself before a royal commission, which included the costs of placing newspaper advertisements expressing its side of the story. The high court allowed the company the deductions Temporal connection (P336): Before the commencement of a business (P336) o Softwood Pulp vs FC of T (1976) o Griffin Coal Mining vs FC of T (1990) o Goodman Fielder Wattie vs FC of T (1991) After the cessation of a business (P337) o Amalgamated Zinc Ltd v FC of T (1935) o AGC advances v FC of T (1975) o Placer Pacific Management vs FC of T (1995) o FC of T vs Brown (1999) o Cal in nature (P341) Once and for all test (P341): that expenditure incurred once and for all is usually capital in nature, whereas expenditure incurred regularly is usually revenue in nature Vallambrosa Rubber Co Ltd v Farmer (1910) (P341) capital in nature British Insulated & Helsby Cables vs Atherton (1926) (P342) Business entity test (P342): expenditure relating to the establishment, organization, enlargement, extension or protection of a business entity is usually treated as capital in nature ewspapers Ltd vs FC of T (1938) (P342) o Private or domestic nature (P343): private is personal and domestic is something that concerns household affairs Lodge v FC of T (P344): the court denied deductions to a law clerk for nursery fees paid to have her child minded so that she could undertake work o Related to exempt income or non-assessable non-exempt income (P345) o A provision (P345) To the extent that (P323): in certain circumstances a loss or outgoing may need to be apportioned, in which case the loss or outgoing will only be partly deductible. o Ure v FC of T (P324): interest expenditure incurred by a taxpayer on a loan used for both income-producing and private purposes should be apportioned between those objects. o Ronpibon Tin NL & Tongkah Compound v FC of T (1949) (P324): the company earn both exempt income and ordinary income under Australian aw and after they ceased the business, the court allow the company to deduct part of the expense Incurred & timing of deductions (P346): whether a loss or outgoing has been incurred depends on the existence of a liability rather than whether or not it has been discharged o FC of T v James Flood Pty Ltd (P346): employees needed to complete a minimum of 12 months continuous service in order to be eligible for holiday pay. The court denied a deduction to the taxpayer on the basis that no liability to make the payments had yet arisen, so no amount had yet be incurred. The taxpayer must have completely subjected itself to the loss of outgoing o Nilsen Development Labs vs FC of T (P346): similar facts as the James flood case but this time the employees are entitled to the leave without working 12 month continuous service, while high court held that it was only when employees took their leave that a liability to pay arose and an outgoing could be considered to be properly incurred
Various expenses
o Clothing expenses (P353):
Mansfield vs FC of T (P353): generally clothing is private in nature and not deductible under s8-1. However, under certain circumstances, it may be deductible Additional clothing – FC of T v Edwards (P353) Clothing have special features or harsh working conditions result frequent damage: Morris v FC of T (P353) Protective clothing (P354) o Travel expenses (P354) Travel on work vs. travel to work Lunney & Harley v FC of T (1958) (P354) John Holland Group Pty Ltd v FC of T (2015) (P355): the court allowed travel expense deduction for the construction worker who worked in Geraldton and lived in Perth FC of T v Wiener (P355): the court allowed travel expenses for a teacher travel between different schools but not from home to school FC of T v Collings (P356): when it involved stand-by or on-call duties, travel expense is deductible Travel between two unrelated jobs (P356): FC of T v Payne (P356): the travel cost between works generally is not deductible Travel to find new job (P357): differences between travel to find new client and travel to find new employment FC of T v Maddalena (P357) o Self-education expenses (P358) Linked to current occupation (P423): generally deductible FC of T v Finn (1961) (P358) Not linked to current occupation (P360): generally non-deductible FC of T v Roberts (P360) o Home office expenses (P363): depend upon whether the home could be regarded as a place of business or whether the taxpayer simply find it ient to do part of their work at home Handley v FC of T (P363): not deductible Swinford V FC of T (P363): deductible o Legal expenses (P374): Sunraysia Broadcasters Pty Ltd v FC of T (P375) o Interest expenses (P367) The use of the borrowed funds: FC of T v Munro (P363) Steele v DFC of T (P363)